Does paying off a HELOC qualify as a Roll Over for Tax Purposes?

3 Replies

I am a new to the forum and had a Real Estate / Tax Question.

I recently received an offer to buy out my 19% position in a commercial office building. I wanted to use at least part of the money to pay off my HELOC for my personal residence. I wanted to know if this would qualify as a Roll Over with the IRS. I wanted to make sure I wouldn't get hit with capital gains or some other issue that was unexpected.

Thanks in advance,

John Thomas

@John Thomas

It doesn't look like this qualifies for any preferential tax treatment.
What you are describing it to use the proceeds from a sale to pay off a personal debt. The Interest on the HELOC may be tax deductible(if used to purchase/improve personal residence) so you may be losing a tax deduction paying off the debt.

If you have the ownership in the commercial office building in your own name - you may be eligible to defer the gain doing a 1031 - like kind exchange.

If you have the ownership through a partnership interest - then you do not qualify to defer your gain.

Thanks Basit, 

I appreciate the advice. It is through a partnership and I asked my CPA and she agreed with you that it would not qualify as an exchange because I don't own it directly but only the partnership. Also, as you said the HELOC itself would not qualify.


Assuming your HELOC is still at a nice low interest rate, why in the world would you pay it off? Find another cash producing asset with a yield higher than the cost of the HELOC and create more arbitrage.

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